FERC postpones financial trades in NY market


The Federal Energy Regulatory Commission denied last week Morgan Stanley Capital Group Inc.�s application to force the New York Independent System Operator (ISO) to permit financial bids in the wholesale power market by entities with no generating capacity or customers to serve in that state.

The item had been scheduled for discussion at Wednesday's meeting, but FERC issued an order on the matter ahead of time.

Morgan Stanley had challenged the NYISO rule that only allowed participation in the New York wholesale power market by entities with generation or customers to serve.

But that will change.

�It�s not if, it�s more when,� says Ken Klapp, spokesman for the ISO. �We have full intentions of building it (financial trades) into the system.�

Meanwhile, the ISO disallowed financial transactions in the New York power market now because it�s primary objective is to get the physical markets working smoothly first. Just launching those markets in December of last year required a number of adjustments to software and market design. The ISO wants to get the physical markets to function efficiently before it alters the software to accommodate financial trades, says Klapp.

The ISO is just not ready to establish rules and software for financial trades when there is still some risk that the physical markets could be manipulated for windfall profits unrelated to supply and demand, the ISO explained in its release.

�When we have confidence that efficient operation has been achieved and that market gaming opportunities have been addressed, we will be better positioned to consider some of the market enhancements,� William J. Museler, president and CEO of the ISO, said.

FERC did order the ISO to develop a plan for including financial trades of power into the New York market by January 2001. The agency will review that plan. But there is no timetable for the ISO to implement any of those changes yet.

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